Understanding employers’ responses to for-profit colleges

by Nicole Deterding and David Pedulla

Between 1990 and 2010, the number of for-profit postsecondary institutions in the United States more than tripled, to over 1,100. This rapid rise of for-profit colleges and universities was a sweeping change in the U.S. higher education landscape, particularly for students seeking two-year degrees and employers wishing to hire college graduates without a bachelor’s degree.

Given this monumental change, how do employers evaluate credentials from new educational institutions?

Tworecent field experiments have examined employer responses to for-profit and non-profit credentials. These studies sent experimentally manipulated job applications – randomly assigning applicants either a for-profit or non-profit degree – to apply for real job openings. Neither study found a measurable difference in employers’ responses to job candidates who report an associate’s degree in business from a for-profit institution compared to one with an associate’s from a nearby community college.

While this work offers convincing estimates of how employers respond to job applicants with associate’s degrees, it leaves open questions about why employers don’t appear to register a difference between these institution types.

Perhaps it is the case, as a traditional human capital explanation would suggest, that employers have (or easily acquire) reliable information about college quality. They may truly find no difference in the average skills possessed by associate’s degree graduates of Bronx Community College and Globe Institute of Technology.

It also may be that, regardless of the actual skills certified by for-profit and non-profit college programs, a degree from similarly non-selective institutions “signals” to future employers the probability that applicants will perform similarly on the job. While these two accounts differ on the type of information communicated by a college degree, both assume that employers have basic knowledge of degree-granting institutions.

But, is that assumption true? Given the rapidly changing higher education landscape, it also could be that employers have little information about particular institutions or the average student graduating from them. In this case, instead of incorporating information from the institution name or sector when evaluating job candidates, employers may respond to the associate’s degree itself. Sociological theories of educational authority suggest that this is a possibility.

Importantly, this mechanism is unlikely to hold among employers for elite, higher-skilled jobs. Prior research demonstrates that these employers are likely to differentiate between applicants with bachelor’s degrees from UC Berkeley and, say, University of Phoenix.

But, are employers aware of differences between associate’s degrees from Los Angeles Community College and Everest College? The answer matters for understanding the linkage between two-year colleges and the labor market.

In a recently published study, we designed a new field experiment to better understand how employers evaluate different types of educational credentials when hiring for administrative and clerical jobs. Do they use information about the institution granting the degree or rely on the degree itself, regardless of where it was earned?

What did we do?

Between February and December 2014, we submitted 1,268 applications to 634 administrative assistant and clerical job listings in three major U.S. metropolitan areas. Applications were randomly assigned one of four educational credentials – a high school degree alone or an associate’s degree from one of three categories of institution: (1) a local, nonprofit community college; (2) a local, for-profit institution; or (3) a fictional institution.

We then compared how employers responded to job applicants with each type of educational credential.

By including a fictional educational institution in our research design, we are able to disentangle the relative importance of the degree-granting institution (for-profit versus nonprofit) versus the credential earned (associate’s degree versus high school diploma) during the hiring process.

The intuition is this: if employers treat a degree from a fictional institution similarly to degrees from local for-profit and community colleges, it would appear they do not make meaningful judgments about institutional quality when hiring associate’s degree holders. If employers are aware of or seek out information about institutions that grant associate’s degrees, the applications with a non-existent institution should be heavily penalized.

What did we find?

Consistent with previous research, we find similar “callback” rates for applications with for-profit and non-profit associate’s degrees.

But, we also find that employers are equally likely to contact applicants with an associate’s degree from a fictitious institution. Thus, the first key finding from our field experiment is that the employers in our study do not appear to consider the institution where a degree was earned when hiring for lower-skilled administrative and clerical jobs.

Second, among the full sample of employers in our study, we do not find strong evidence of preferences for an associate’s degree over a high school degree. However, when we restrict our analysis to more selective employers, we do see a preference for an associate’s degree. Among employers listing a preference for an associate’s or bachelor’s degree, associate’s degree-holders were called back at a higher rate than those who only completed high school.

Importantly, even these employers call back applicants across the three types of associate’s degrees—non-profit, for-profit, and fictitious—at a similar rate.

Where does this leave us?

Many students wonder whether a college degree is a good investment.

In part, the answer depends on the advantages their degree offers them in the labor market. Since for-profit degrees can cost multiple times what a local non-profit degree might, prospective students should understand how future employers evaluate their accomplishment.

Our study only examines one part of the hiring process: initial applicant screening. As with prior work, we find no evidence that more expensive for-profit associate’s degrees offer an advantage early in the hiring process. We add to the understanding of school to work linkages by suggesting it isn’t safe to assume that employers use information about the particular school an applicant attended when they initially sort through résumés.

In a quickly-shifting educational marketplace, where institutions can open and close in short order, we need to learn much more about the availability and quality of career services at community colleges and for-profit institutions. It is possible that efforts on the part of colleges to build trusted relationships with employers would improve the quality of information their credentials convey.

Such efforts could improve the value of associate’s degrees. They might also improve the functioning of the educational marketplace as a whole.